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What's wrong with the 'Buffett rule'

More tax code fairness is good, but it won't solve all the problems of the US economy. The reality is that everyone needs to pay higher taxes, plus undergo an attitude shift.

By MSN Money Partner Apr 11, 2012 2:05PM

This post is from Rick Newman at U.S. News & World Report.

 

http://www.usnews.com/moneyMany Americans feel dispossessed. Data support their grievances: Incomes are stagnant, joblessness is high, and more people really are falling behind.

 

President Barack Obama thinks he has a solution: a new "fairness" agenda that starts with the "Buffett Rule," a proposal to raise tax rates on millionaires to the same levels middle-class earners typically pay. This would be followed by other measures meant to assure that "everyone gets a fair shot and everyone does their fair share," as Obama has said repeatedly.

 

The U.S. tax code is certainly a mess that favors those able to move their money around and hire experts to take maximum advantage of loopholes. The Buffett Rule is actually sensible, because it would plug some of the holes that special interests have drilled into the tax code over the past 50 years. But it also seems like the wrong place to start trying to revive America's fortunes, for at least two reasons.

 

The first problem is that the Buffett Rule and Obama's whole fairness doctrine perpetuate the fiction that Washington can solve the overarching problem of fading prosperity. This might have been plausible 50 years ago, when the U.S. economy was far more self-contained and growing at a heady pace that made lavish government spending possible. (Post continues after video.)

These days, however, the federal government is heading toward insolvency, and many aspects of the global economy are beyond Washington's control. The enormity of the national debt, which now tops $15 trillion, makes it a mathematical certainty that Washington is going to do less for citizens and ask them to contribute more. If politicians were honest, they'd prepare voters for the sacrifices that lie ahead, instead of promising 99% of them that everything will be fine as long as the other 1% pays more.

 

The Buffett Rule would impose a minimum effective tax rate of 30% on people who earn more than $1 million per year, raising the average tax rate for that group by a few percentage points. But even the White House acknowledges that the amount of extra revenue raised would be trivial compared with the size of the debt.

 

Obama suggests that higher taxes on the wealthy will reduce the need to raise taxes on the middle class. But nearly every budget expert will tell you that the only way to get the debt under control is to raise taxes on virtually everybody, or eviscerate government services.

 

The second problem is that Obama is still not telling struggling Americans what it will really take to revive their own fortunes and, to some extent, the nation's: more grit, more self-sufficiency, a more entrepreneurial spirit and greater engagement with the world beyond U.S. shores.

 

There are many Americans who have what it takes to succeed in the hypercompetitive global economy. Others are getting the right skills and going where the best opportunities are -- which sometimes means overseas.

 

But too many Americans are stuck in place, waiting for jobs that are never coming back or hoping the government will intervene and fix things. The odds are very high that it won't. The government lacks the money and know-how to reboot most parts of the economy. Plus, ongoing paralysis in Washington makes the government the least effective cog in the whole American system.

 

This is not to say that free-market incentives and more competition are the answer, as many conservatives insist. All the bailouts, corporate meltdowns and economic disasters of the past decade have made it clear that capitalism generates turbulent waters, not the gentle rising tide that capitalist romantics believe in. It raises some boats, swamps others and threatens a tsunami every now and then.

 

We need nimble government that enforces some healthy rules, but we also need robust citizens who take smart risks, bounce back from setbacks and rarely think of government as part of their strategy to get ahead. Warren Buffett, the man, is an exemplar of such drive. The rule named after him isn't.

 

More from U.S. News & World Report and MSN Money:

 

 

VIDEO ON MSN MONEY

177Comments
Apr 12, 2012 1:22PM
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Why doesn't Obama point out that Buffet currently owes a BILLION dollars in back taxes and has been fighting the IRS for years? (Look it up!)

 

It's not about the rate you pay, it's about what you actually pay!

Apr 12, 2012 1:01PM
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I am tired of all of this class warfare rhetoric. I have no problems with the rich people in this country. I aspire to be one by hard work and by my own investment choices. The rich are not a burden or a drain for our country. I believe most of them do not use social security even though they may have paid into the plan or Medicare. The rich have their own medical insurance coverage. The problem with the budget deficient is not that the rich do not pay enough; it is the government spends too much. Our politicians do not believe in reducing the deficit by getting ride or pork barrel projects or wasteful spending. They just want to create more programs so they can get elected.  What about the people, who pay no taxes at all and get Medicaid, welfare, food stamps, and live in subsidized government housing.  Are they not a drain for the taxpayers of this country? I feel more resentment for people who have children and do not support them, and do not work, and take advantage of government programs than I do with people who are successful and pay taxes.  Maybe when our politicians learn to cut back and save we will start to reduce the budget deficit; they can start by getting rid of their own pension plans and pay into a 401K plan like the rest of us have to do.

Apr 12, 2012 12:57PM
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Well, That was downright a waste of bits and bytes.  Having nothing to actually do with the Buffet rule, it could have been entitled "What's wrong with requiring children to be 4' 6" in order to ride the Magic Mountain at DisneyWorld". 

 

Let's summarize - it really doesn't make much difference to the national debt.  That's nice, but it's not the point.  It's a matter of fundamental fairness to each class of America - does our government afford the wealthy privileges that the middle class don't receive (which is admitted by the article)?  The Buffet rule is one, extremely small step to rectify this government largess to the citizens who need it least.

 

Second, the article states that this will not teach America that it needs grit to regain its vigor.  Nonsense.  Anything that levels the playing field helps make the middle class and lower classes think they might just actually have a chance, rather than playing a game with the odds stacked against them.

 

So let's rename this article, "What's wrong with US News and World Report's analysis of Class Fairness in America".  The answer is easy - they don't even perceive the problem, so they can't begin to discuss the solution.

Apr 12, 2012 12:39PM
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It's very ironic to me this is such a debatable issue. The real problem is, the un fare tax issue has been going of far to long. If this issue had been addressed 20 years ago we wouldn't be in such a mass now. But here we are. There are over 260 multi millionaires in these country not to mention the countless thousands of multi millionaires. Ho but wait, you say they are the job craters. Well!

Where are the jobs. The middle class pay scale is falling like a rock, the coast of living is rising, and people are finding it harder to make ends meet. Who is going to pay the taxes when the middle class is gone? What's that you say, there will always be a middle class? Wrong! It will be the new poor working class. To allow this people to continue raping, and pillaging our grate nation is a breach of national security. I hope, us middle class nobodies don't get backed into a corner. Lets reverse this downward spiral. Let the wealthy carry the burden for a while.

Apr 12, 2012 12:39PM
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I think the Buffet rule is defenatly a step in the right direction. I also think there should be a lot more oversight committees to help curb un necessary spending and fraud by govt. and its contractors.
Apr 12, 2012 12:38PM
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The Buffet Rule isn't being billed as a fix-all. To portray it as such is a defeatist tactic that keeps many ideas from being implemented that would otherwise contribute to making progress toward a complex solution. Our economic health swings largely on public sentiment, and is affected regularly by a few reactionary futures traders and others on Wall St. While the Buffet Rule will surely not fix all that ails our economy and our debt, it would send a clear signal to the American people that Washington is serious about all of us being treated fairly. That alone would give us a confidence boost that would stimulate more economic healing than just the projected increase in tax revenue promises.
Apr 12, 2012 12:35PM
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15% tax cross the board. The more you make the more pay.

 

spread the wealth that's what the communist tried to do years ago and it didn't  work. We haven't learn yet, have we??

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Buffet is a disingenuous liar in that he sued the Federal Government claiming he should not pay the tax assessed on his corporate jets empire yet says his secretary is paying too much and he wants others to pay more.  If Buffet has such high tax moral goals why doesn't he just write a Check for $20 Billion to the Government.   Shut up or put up. 

 

Give me a break! 

 

The problem is not taxation the problem is spending and borrowing.  Our economy will thrive if we will decrease the corporate tax rate from the highest in the world (35%)  to the lowest (15%) and everyone will want to set up business here and bring jobs here.  Instead we are driving businesses (jobs) away by over taxation.   I am traveling to China for that very reason because we have idiots like this administration spending and taxing us into the poor house.  

Apr 12, 2012 12:09PM
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speedhd, your arguments are so pathetically ignorant as to defy imagining.  Do you really think there is someone in this country that pays no taxes?  I'll grant there are many who pay no income tax and some of those make millions but if you are alive you are paying taxes and taxes on taxes.  Your pitiful resentments and those of people like you will destroy what little democracy there is in this country.  
Apr 12, 2012 12:05PM
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First Job of a politician:    Get elected

Second:     Ask for money to get reelected

Third:        Legislate only for those with the money that will reelect him/her

 

Told to me by my grandfather in 1945, I am 71 now, when I asked : What is a politician?.

 

Do they (all of them) want to legislate and resolve the problem?

Maybe , some day the country and the people will be more important than the political party.

 

I hope that is not too late

Apr 12, 2012 11:34AM
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The idea that the Buffet rule is any where close to being a good thing is laughable. The first thing we need to do is get Obama out of office with his socialist ideas. Next we need to stop the bleeding (spending) cutting every program there is and paying down the massive debt we have. Next we need a flat taxt that EVERYONE pays. The idea that 50 % of the people pay nothing and the top 1% of earners support this Country is a disgrace. To add to the old "salt in the wound" thought when you raise taxes on the top 1% saying it is time they paid their fair share when they have basicly been supporting this Country is more than just a dishonor to all they have paid in supporting us. I think when people attack others because they have gotten off their butt and earned a lving or their parents did is another way those who sit back get fat and wait for the Government to support is justifing their claim of fouls by the top earners. In fact the "foul" is those who do nothing and attack others for what they have, what they earn and the end of year payoffs they get. People who cry about what others make and what they pay in taxes is a disgrace to themsevles. It is no wonder more and more people are taking their money and their businesses overseas. Just like the article states people are sitting around waiting for the job to come back or the GOVERNMENT to take care of them or fix it. It is sad state our Country is in when people think all they can do is sit and wait for the GOVERNMENT to take care of them and fix things. What ever happened to getting out their and hussling up a job because there are jobs out there. They may not be the highest paying jobs or the best jobes but they are jobs that will help people support themselves and their families. Get real and get out there and do what you need to do to legally earn a living. Move change careers go to school trade school or college. Start a company get together with some friends and build a new company. Take a moment and you will see there are many ways to start a company providing a service that many need and will pay for. It time for America to get up and get with it.
Apr 12, 2012 11:29AM
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I wonder whose fault the loopholes are..... Congress, maybe? So they made it legal to pay fewer taxes and now Obama is all upset rich people have loopholes? My head is spinning.... How about get rid of the loopholes and you've effectively raised the tax rate without making a new law? Oh yeah, because they're lawMAKERS and don't understand how to get rid of a law, just patch over the problem today and all is well. But in reality (the world which they don't live in) these new laws make everything worse down the road.

Apr 12, 2012 11:18AM
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It should be illegal to hide your money in an off-shore account....PERIOD! I pay my taxes every year...the more I make the more I pay...why the **** should the rich, (or corporations), be any different? WE SHOULD ALL PAY OUR FAIR SHARE!!! A long time ago the rich used to pay alot more....and guess what??? They were still rich!!!!! This is the second day in a row that MSN is talking b.s. about the Buffett Rule. Everyone pays taxes...even those that make no money pay sales tax, etc. We should all pay our fair share...

 

Apr 12, 2012 11:15AM
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Not the best,

 

Lars the bull, has it right its a spending problem!  Look at BHO's solutions in general, create a program, create a benefit, create a study, dump money into R&D picking their choice for winners,   Add regulations, add taxes, add tarriffs.

As the free market becomes less free, small business takes less risk, creating less prosperity. 

Apr 12, 2012 11:06AM
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WOW...that "sounds" awesome. Its too bad that the people who earn more than 1 million dollars a year get paid 1 dollar a year and the rest is given in stock options and taxed at 14% for capital gains when they pull it out of the market. Way to go Mr. Obama. You have once again siad something that sounds great to an uneducated public and will get you votes. Nice job on not fixing our problems and getting re-elected at the same time.

All this will do is instead of making the people who get paid in stock options pay 28 cents in taxes from the 1 dollar they pay themselves is that now it will make them pay 30 cents in taxes a year. Educate yourself on how the modern economy works and you can see this is merely a ploy to get votes.

Apr 12, 2012 11:06AM
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So since higher taxes on the rich will not solve all of our economic problems, and eliminate our debt, there isn't really much use in doing it. Yet we should eliminate long-term unemployment benefits and cut Medicaid, because that will save millions of dollars and every little bit helps. I think most people realize that the U.S. is in trouble, and are willing to make sacrifices (higher taxes) when they can afford to do so, but see no sense in doing that when those most able to sacrifice refuse to do so.

Apr 12, 2012 11:05AM
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Thanks Malkosha,
Giving a quick once over the Brown study includes total cost for all war spending since 9/11 in all three theaters. I was just talking about Iraq, as that swhat the other poster was commenting on.  It also includes estimated indirect costs such as long term care for the wounded veterans and other other items which is the true long term costs, but money not spent in those budget time frames. 
Yes I am conservative, I suggest you look at some of our ideas and not believe the Liberal bias coming from Brown.  Military spending as a whole helps the economy as it creates manufacturing jobs and it is completely constituational.    
Conservatism is the only thing that can get us out of this national debt, our debt interest alone will soon overtake military spending soon.   
Apr 12, 2012 10:56AM
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Nobody is pretending that this is the entire solution.  I don't understand why it is so impossible to consider that it be a part.

 

Also, why is the espected revenue the only thing we ever hear about as a benefit of a higher tax rate?  Does anyone understand how the extremely low rates on investment income cause the casino effect that ruined our economy a few short years back?

Apr 12, 2012 10:53AM
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i am sick and tired of tax talk, the problem is spending by all forms of government, stop spending start cutting.
Apr 12, 2012 10:51AM
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While it may not fix all of our problems a tax increase on the highest 1% of earners certainly would not hurt the 1% or our country. However this tax increase should only be implemented along with a tax increase on the 47% of Americans who pay no tax at all. Together a small tax of $240 per year ($20 a month) on the 47% (who currently pay nothing) along with the increase on the top 1% of earners would go a long way towards helping our countriy's budget.  I would think that most people in the top 1% would be more than happy to pay a tax increase to help the country that has enabled them to make such a good living. Conversely I would also think that most people in the 47% (that would be about 147 million people times $240...you do the math) of the population who currently pay no taxes would/should be willing to pay $20 a month to live in the greatest country in the world.

Along with the above tax increases should come some responsibility from our politicians to make a concerted effort to decrease spending. When I say decrease spending I do not suggest decreasing services to our poor and needy. I mean taking a hard look at all expenditures starting with foreign aid. I do not suggest cutting off aid to any one country but rather an across the board decrease of 5-10 %. Yes I do realize that foreign aid is not the largest expenditure in the budget but it is a good place to start.  I could go on and on with other suggestions but if our politicians could stop the bickering long enough to just implement the above suggestions it would be a good start that I believe could become a positive pattern.

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